Empirical Properties of Diversion Ratios

57 Pages Posted: 16 Jul 2018 Last revised: 23 Apr 2021

See all articles by Christopher T. Conlon

Christopher T. Conlon

Leonard N. Stern School of Business - Department of Economics

Julie H. Mortimer

Boston College; National Bureau of Economic Research (NBER); Harvard University - Department of Economics

Date Written: July 2018

Abstract

The diversion ratio for products j and k can be interpreted as the result of an experiment: increase the price of product j, measure the number of consumers who leave product j, and then measure the fraction of leavers who switch to a substitute product k. In theory, this is expressed as the ratio of demand derivatives that enter the multi-product Bertrand-Nash first-order condition for a firm. In practice, diversion ratios are also measured from second-choice data or customer switching surveys. We establish a LATE interpretation of diversion ratios, and show how diversion ratios can be obtained from different interventions (price changes, quality changes, assortment changes) and how those different measures relate to one another and to the underlying properties of demand.

Suggested Citation

Conlon, Christopher T. and Mortimer, Julie H., Empirical Properties of Diversion Ratios (July 2018). NBER Working Paper No. w24816, Available at SSRN: https://ssrn.com/abstract=3214362

Christopher T. Conlon (Contact Author)

Leonard N. Stern School of Business - Department of Economics ( email )

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Julie H. Mortimer

Boston College ( email )

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617-552-3676 (Phone)

HOME PAGE: http://fmwww.bc.edu/ec/mortimer.php

National Bureau of Economic Research (NBER) ( email )

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Harvard University - Department of Economics ( email )

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